Federal court puts chill on Maryland drug price-gouging law

States continue to battle budget-busting prices of prescription drugs. But a federal court decision could limit the weapons available to them – underscoring the challenge states face as they, in the absence of federal action, go one on one against the powerful drug industry.

The 2-to-1 ruling April 13 by the U.S. 4th Circuit Court of Appeals invalidated a Maryland law meant to limit “price-gouging” by makers of generic drugs. The measure was inspired by cases such as that of former Turing Pharmaceutical CEO Martin Shkreli, who raised one generic’s price 5,000% after buying the company.

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The law, which had been hailed as a model for other states, is one of a number of state initiatives designed to combat rapidly rising drug prices. It gave the state attorney general power to intervene if a generic or off-patent drug’s price increased by 50% or more in a single year.

If dissatisfied with the company’s justification, the attorney general could have filed suit in state court. Manufacturers would have faced a fine of up to $10,000 and potentially have to reverse the price hike. The generics industry was fiercely critical of the law.

“We are evaluating all options with regard to next steps,” said Maryland Attorney General Brian Frosh in a statement. His office would not elaborate further.

The state could appeal to have the case heard “en banc,” meaning by the full 4th Circuit, with jurisdiction over five states.

Such appeals aren’t commonly granted, but this law could be a strong candidate, suggested Aaron S. Kesselheim, MD, an associate professor at Harvard Medical School, Boston, who researches drug-price regulation.